The new company will own all of Yahoo’s 384 million remaining shares in Alibaba, valued at $40 billion. The spin off will be tax-free, which had been predicted and was one of the main concerns of shareholders — and as of 4:32 p.m. Eastern, Yahoo shares were up more than 7 percent in after-hours trading.

“Throughout my tenure with the company, we have worked tirelessly on a tax-efficient alternative that would maximize the value of our Alibaba investment for our shareholders,” Yahoo CEO Marissa Mayer said in the spin-off release. “A tax-free spin-off accomplishes this and delivers value directly and exclusively to our shareholders.”

In an earnings call last year, Mayer (who’s been facing increasing pressure from activist investors on this and a number of other issues) said the company was working with “the best tax experts in the country working on structures to maximize the the value [of the Alibaba stake] to our shareholders.”

Yahoo says the spin-off should be completed in the fourth quarter of this year (after the post-Alibaba IPO lock up on Yahoo shares expires). SpinCo will be a publicly traded company, with stock distributed pro rata to Yahoo shareholders, and will also include “a legacy, ancillary Yahoo business.”

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OverviewYahoo is the world's largest start-up, which means that we move fast and always let our users lead the way. Founded in 1994 by two Stanford PhD candidates, we've grown into a company that helps you find what you're looking for on any Internet-connected device. Our employees are rewarded for curiosity and we celebrate explorers, relying on our passionate and transformative talent to do what's right …